Increasing gold prices and new schemes launched by jewellers and gold finance firms are pulling people to invest in gold
In the past few weeks, there is more clarity about where ordinary savers are not putting their money. The shrinking retail investor population shows that they are disenchanted with the stock market; since August 2009, they have been pulling out of equity mutual funds and, after April 2010, they panicked about unit-linked insurance products (ULIPs) as well.
Galloping property values have priced people out of the markets. So where is retail money going? In a gold-worshipping country, soaring gold prices and innovative schemes by jewellers and gold finance companies are a big magnet. These companies have collected thousands of crores without attracting the attention of financial regulators. Data on aggregate investments in gold or jewellery schemes are simply not available, except through the large and inconsistent turnover figures reported by companies that were unknown outside their home turf a few years ago.
As Moneylife wrote earlier, Titan’s Anuttara jewellery purchase scheme alone has 2.5 million investors. This is a 12-month systematic investment plan, where Titan pays the last instalment as a bonus. While SEBI and IRDA are under pressure to scrap sales commissions on regulated financial products, Titan provides such attractive sales incentives that its staff would rather enrol a customer to Anuttara than sell a piece of jewellery. The big markets are also a surprise. Maharashtra is a huge market for Anuttara, but the maximum subscriptions come from Nagpur, not Mumbai.
Now look at the Kerala-based Muthoot which has already established a pan-India presence. Last week, we discovered that there are two giant Muthoot groups. First, is the Rs20,000-crore Muthoot Pappachan group of 18 companies, including one listed entity—Muthoot Capital Services Ltd. Its Muthoot Securities claims that the group has—hold your breath—450 million customers nationwide. Nowhere on the website is there a break-up or details of these stupendous numbers or financial details for the whole group.
The second Muthoot group traces its origin to 1887 and has 1,700 branches nationwide, but is even more opaque. Its list of businesses encompasses the entire services sector including finance and hospitality, but its extensive website has no financial information. A third gold company, Mannapuam Finance, claims two million customers and 1,180 branches but provides no audited financial numbers.
All these companies attract millions of customers with ‘gold banking’ and ‘gold investment’ schemes, the regulation of which is completely unclear. Yet, each of these companies has the reach and size of a small nationalised bank, without the same disclosures, statutory reporting requirements or regulatory oversight. Each of them claims to be in dozens of businesses, but there is no clarity on how deeply they are inter-twined financially. Given how much of retail savings is going into these companies, let’s hope the government wakes up quickly to the need to regulate them stringently.